Tamilnadu Tourism Development Corpn Ltd, Chennai V. ITO, Corp Ward -3(1), Chennai

ITA 391/CHNY/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9257 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 15-02-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D ROHINI
• Assessee Lawyers: J CHANDRASEKARAN
• Keywords: Business income; Question of law

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI , ! , ' # BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBE R ! ./ ITA NOS.387 TO 391/CHNY/2019 $ /ASSESSMENT YEARS: 2008-09, 2009-10, 2010-11, 2013- 14 & 2014-15 M/S. TAMIL NADU TOURISM DEVELOPMENT CORPORATION LTD., NO.2, WALLAJAH ROAD, CHENNAI 600 002. VS. INCOME TAX OFFICER, CORPORATE WARD-3(1), CHENNAI. [PAN: AAACT 3453H] ( % /APPELLANT) ( &'% /RESPONDENT) % ( ) / APPELLANT BY : SHRI J.CHANDRASEKARAN, CA &'% ( ) /RESPONDENT BY : MS. D. ROHINI, JCIT * ( +' /DATE OF HEARING : 17.06.2019 ,-$ ( +' / DATE OF PRONOUNCEMENT : 20.06.2019 . / O R D E R PER SHRI S. JAYARAMAN, ACCOUNTANT MEMBER : THE ASSESSEE FILED THESE APPEALS AGAINST THE COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-7, CHENNAI, IN ITA NOS.133, 130, 139, 138 & 345(T)/CIT(A)-7/2016-17 DATED 30.11.2018 FOR THE ASSESSMENT YEARS (AYS) 2008-09 TO 2010-11 & 2013-14 , 2014-15, RESPECTIVELY. 2. M/S. TAMIL NADU TOURISM DEVELOPMENT CORPORATION LTD., THE ASSESSEE, IS A TAMIL NADU GOVT. UNDERTAKING ENGAGED IN THE BUSINESS OF ITA NOS.387 TO 391/CHNY/2019 :- 2 -: CONDUCTING TOURS, OPERATING HOTELS AND EXHIBITIONS ETC. WHILE MAKING THE ASSESSMENTS FOR AYS 2008-09 TO 2010-11 & 2013-1 4, 2014-15, THE ASSESSING OFFICER (AO) NOTED THAT THE ASSESSEE HAS DECLARED FRANCHISE FEE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPER TY FOR THE HOTEL PROPERTIES LET OUT, CLAIMING STATUTORY DEDUCTIONS T OWARDS REPAIR ETC. UNDER THE HEAD INCOME FROM HOUSE PROPERTY, WHICH WAS AS SESSED BY THE AO UNDER THE HEAD BUSINESS INCOME, RESULTING DISALLO WANCE OF THE STATUTORY DEDUCTIONS CLAIMED @ 30% OF THE INCOME FOR ALL THES E AYS. 3. AGGRIEVED AGAINST THOSE ORDERS, THE ASSESSEE FIL ED APPEALS BEFORE CIT(A). THE LD. CIT(A) FOLLOWING THE DECISION OF H ONBLE HIGH COURT OF MADRAS IN THE ASSESSEES OWN CASE IN APPEAL NO.341 & 342/2014 AND MP NO.01/14 DATED 24.09.2014 CONFIRMED THE ACTION O F THE AO IN ADDING THE SUM CLAIMED U/S. 24 OF THE ACT. AGGRIEVED AGAI NST THOSE ORDERS, THE ASSESSEE FILED ALMOST SIMILAR GROUNDS OF APPEALS FO R ALL THESE AYS AND HENCE, AS A MODEL, THE GROUNDS RELATED TO AY 2008-0 9 ARE EXTRACTED AS UNDER: 1. THE ORDER OF THE LOWER AUTHORITIES IS BAD IN LA W AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE . 1) TREATMENT OF FRANCHISE FEES-30% STANDARD DEDUCTI ON DISALLOWED 1.1. LOWER AUTHORITIES HAVE ERRED IN DISALLOWING ST ATUTORY DEDUCTIONS OF 30% AMOUNTING TO RS. 78,19,780/- ON THE FRANCHIS E FEES INCOME FOR THE HOTEL PROPERTIES LET OUT BY APPELLANT. 1.2.THE LOWER AUTHORITIES HAVE ERRED IN ASSESSING T HE INCOME RETURNED UNDER THE HEAD HOUSE PROPERTIES AS INCOME FROM BUSINESS, THEREBY, DISALLOWING THE STATUTORY DEDUCT ION OF 30% AMOUNTING TO RS78,19,780/-. ITA NOS.387 TO 391/CHNY/2019 :- 3 -: 4. AT THE TIME OF HEARING, THE LD. AUTHORIZED REPRE SENTATIVE SUBMITTED THE FOLLOWING: 3) TREATMENT OF FRANCHISE FECS-30% STANDARD DEDUCT ION DISALLOWED A. APPELLANT DECLARED FRANCHISE FEES INCOME UNDER H EAD INCOME FROM HOUSE PROPERTY FOR THE HOTEL PROPERTIES LET OUT, CLAIMING STATUTORY DEDUCTIONS TOWARDS REPAIR AT 30% WHICH HAS BEEN ASSESSED BY ASSESSING OFFICER UNDER THE HE AD BUSINESS INCOME AND DISALLOWED AFORESAID STATUTORY DEDUCTIONS OF 30%. B. THE APPELLANT SUBMITS SAMPLES COPIES OF AGREEMEN T ENTERED INTO BETWEEN TTDC AND A PRIVATE PARTY WITH RESPECT TO LETTING OUT OF THE HOTEL UNIT. IT IS STATED IN THE AGREEMENT THAT THE FRANCHISOR DECIDED TO LEASE OUT SOME OF THE HO TEL UNITS ON FRANCHISE BASIS AND THE PROPOSAL WAS APPROVED BY TH E GOVERNMENT OF TAMILNADU VIDE G.0.MS. NO.. CLAUSE 1 : THE UNIT WILL BE HANDED OVER TO FRANCHISEE ON AS IS WHERE IS CONDITION. ANY IMPROVEMENTS NEED T O BE DONE ONLY BY THE FRANCHISEE AT HIS OWN COST. THE WORD A S IS WHERE IS CONDITION MEANS THAT THE LAND AND BUILDINGT AVAI LABLE AS ON DATE OF THE TENDER ONLY. NO IMPROVEMENTS! MODIFICATIONS / ADDITIONS! ALTERATIONS WILL BE EARNED OUT IN THE LAND OR BUILD ING AFTER THE TENDER NOTICES IS PUBLISHED. ARRESTING LEAKAGES, PUTTING U P COMPOUND WALL, LAYING APPROACH ROAD, EVICTION OF ENCROACHMENTS IF ANY WILL BE THE RESPONSIBILITY OF THE FRANCHISEE ONLY AND DONE WITH THE PRIOR PERMISSION OF TAMIL NADU TOURISM DEVELOPMENT CORPOR ATION. CLAUSE 2 : THE HOTEL UNIT SHALL BE RUN IN THE NAME OF FRANCHISEE, BUT THE FACT THAT THE PROPERTY BELONGS TO TTDC TO BE INDICATED IN THE NAME BOARD. CLAUSE 2(A): THE FRANCHISEE SHOULD UTILIZE THE PROPERTY ONLY FOR THE PURPOSE OF RUNNING OF HOTEL AND NOT FOR ANY OTHER PURPOSE. CLAUSE 2(B): THE FOOD SHOULD BE PREPARED AND SERVED IN HYGIENIC MANNER BY THE FRANCHISEE. THE FRANCHISEE S HOULD ALSO TAKE STEPS TO PROVIDE SAFE PROTECTED DRINKING WATER. CLAUSE 3 : NO ADDITIONS, ALTERATIONS, TO THE EXISTING BUILDI NG SHALL BE MADE IN ANY MANNER WITHOUT THE WRITTEN CON SENT OF THE FRANCHISOR AND THE FRANCHISEE SHALL MAINTAIN THE BU ILDING IN GOOD CONDITION. IT IS CLEAR THAT THOUGH THE APPELLANT IS TERMED AS FRANCHISER, IT HAS ACTUALLY LEASED OUT THE HOTEL AFTER DUE APPROVA L OF THE STATE GOVERNMENT. BEING A GOVERNMENT COMPANY, THEY HAVE A DDED SEVERAL CLAUSES LIKE PREPARING HYGIENIC FOOD AND DISPLAY OF THE NAME HOTEL TAMILNADU. THESE CLAUSES DO NOT ALTER THE MAIN PURP OSE OF LETTING OUT ITA NOS.387 TO 391/CHNY/2019 :- 4 -: THE LAND AND BUILDING AND EARNING RENTAL INCOME. TH EREFORE THE LETTING OUT OF LAND & BUILDING AND EARNING OF RENTAL INCOME IS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY AND 30% STATUTORY DED UCTION ON THE RENTAL INCOME IS TO BE ALLOWED TO THE APPELLANT. FOR THESE AND SUCH OTHER REASONS THAT MAY BE ADDUCE D AT THE TIME OF HEARING WE PRAY YOUR HONOR TO ALLOW ALL THE SE APPEALS, DELETE THE ADDITIONS AND DISALLOWANCES MADE BY THE ASSESSI NG OFFICER AND RENDER JUSTICE. 5. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT SINCE THE LD. CIT(A) FOLLOWED THE HONBLE JURISDICT IONAL HIGH COURT DECISION, THE ORDERS OF LD. CIT(A) FOR THE IMPUGNED AYS BE UPHELD AND ALL THESE ASSESSEES APPEALS BE DISMISSED. 6. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE STATEMENT O F INCOME TAX, THE AO NOTICED THAT THE ASSESSEE HAS RECEIVED FRANCHISE FE E AND TREATED IT AS AN INCOME FROM HOUSE PROPERTY CLAIMING DEDUCTION @ 30% OF THE RECEIPT U/S. 24 OF THE ACT. THE ASSESSEE SUBMITTED FRANCHI SE AGREEMENTS MADE WITH VARIOUS PARTIES BEFORE THE AO. AFTER CONSIDERI NG THEM AND BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT IN THE ASSESSEES OWN CASE, THE AO DISALLOWED THE DEDUCTIO N CLAIMED U/S. 24 OF THE ACT AND ASSESSED THE INCOME UNDER THE HEAD BUSINESS INCOME IN ALL THE ABOVE ASSESSMENT YEARS. ON APPEALS, THE LD . CIT(A) FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE ASSESSEES OWN CASE CONFIRMED THE ADDITIONS MADE ON THIS ACCOUNT F OR ALL THE AYS. WE HAVE GONE THROUGH THE DECISION OF HONBLE HIGH COUR T OF MADRAS DATED 02.09.2014 FOR THE ASSESSEES CASE IN TAX CASE (APP EAL) NO.342/2014 ITA NOS.387 TO 391/CHNY/2019 :- 5 -: AND MP.01/2014 DATED 02.09.2014, WHEREIN THE HONBL E HIGH COURT EXTRACTED SECTION IV OF THE TENDER DOCUMENT OF THE ASSESSEE IN WHICH THE CONDITIONS OF CONTRACT; SPECIAL CONDITIONS ARE STIP ULATED AND ON DUE APPRECIATION OF THEM HELD AS UNDER: 13. AS IS EVIDENT FROM THE VARIOUS CLAUSES IN THE ABOVE AGREEMENT, THE ASSESSEE HAS NOT LEASED OUT THE PROPERTY MERELY AS A LAND AND BUILDING, BUT ALSO WITH FURTHER CONDITIONS AS TO HO W THE BUSINESS OF THE LESSEES/FRANCHIEES SHOULD BE CONDUCTED WITH REGARD TO THE HOTEL INDUSTRY ONLY. THE SPECIAL CONDITIONS OF CONTRACT M AKE IT CLEAR THAT THE NAME OF THE ASSESSEE SHOULD CLEARLY, IN FACT, PROMI NENTLY BE INDICATED IN THE NAME BOARD AND THE NAME OF THE FRA NCHISEE SHOULD BE BELOW THE NAME OF TTDC, THEREBY, MAKING IT CLEAR THAT THE TTDC CONTINUES TO BE OPERATING THEIR BUSINESS THROUGH TH EIR FRANCHISEES. THUS THE SPECIAL CONDITIONS MAKE IT CLEAR THAT THE ASSESSEE CORPORATION CONTINUES TO BE IN THE BUSINESS OF TOUR ISM ACTIVITIES, THOUGH NOT DIRECTLY BUT THROUGH THE FRANCHISEES AND HAS RECEIVED INCOME AS FRANCHISEE FEE AND THAT CANNOT BE LOST SI GHT OF WHILE DETERMINING THE NATURE OF INCOME. 14. WE ALSO FIND MUCH FORCE IN THE FINDINGS OF THE TRIBUNAL THAT THE PROPERTIES LET OUT BY THE ASSESSEE ARE BUSINESS ASS ETS OF THE ASSESSEE CORPORATION, AS THEY HAVE NOT TREATED THE LEASED OUT PROPERTIES AS NONBUSINESS ASSETS OF THE ASSESSEE-CO RPORATION. IT IS RELEVANT TO STATE THE DEFINITION OF THE WORD FRANC HISEE MENTIONED THE DICTIONARY, WHICH READS AS FOLLOWS: ANY SPECIAL RIGHT, PRIVILEGE, OR EXEMPTION GRANTED BY THE GOVERNMENT, AS TO BE A CORPORATION, OPERATE A PUBLI C UTILITY, ETC. 15. IN THE DECISION REPORTED IN (2008) 300 ITR 118 (MAD) (KEYARAM HOTELS (P) LTD. V. ASSISTANT COMMISSIONER OF INCOME TAX) WHILE DEALING WITH THE INCOME EARNED BY THE ASSESSEE THER EIN BY LETTING OUT THE PROPERTY, THIS COURT HELD AS FOLLOWS: BEFORE THE AUTHORITIES UNDER THE ACT AS WELL AS TH E TRIBUNAL, THE ASSESSEE HAS NOT PLACED ANY MATERIALS TO SUPPORT ITS CASE THAT THE PROPERTY FROM WHICH INCOM E HAS BEEN DERIVED WAS USED AS BUSINESS PROPERTY AND THE EXPLO ITATION OF THE PROPERTY WAS IN THE NATURE OF THE BUSINESS OF T HE ASSESSEE COMPANY. 16. IN THIS CASE, WE FIND THAT THE ASSESSEE HAS G IVEN A SPECIAL RIGHT OR PRIVILEGE TO THE FRANCHISEES TO UNDERTAKE A PART ICULAR BUSINESS IN THE PROPERTY OF THE ASSESSEE ON RECEIPT OF FRANCHIS EE FEE. THEREFORE, THE INCOME IS CLEARLY IN THE NATURE OF BUSINESS INC OME AND NOT ITA NOS.387 TO 391/CHNY/2019 :- 6 -: INCOME FROM HOUSE PROPERTY. HENCE, THE DECISION REP ORTED IN (2008) 300 ITR 118 (MAD) (KEYARAM HOTELS (P) LTD. V. ASSIS TANT COMMISSIONER OF INCOME TAX) DOES NOT APPLICABLE TO THE FACTS OF CASE. 17. WE FIND THAT THE REASONING OF THE TRIBUNAL IS J USTIFIED IN THE FACTS OF THE CASE. ACCORDINGLY, WE FIND NO QUESTION OF LA W MUCH LESS ANY SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATIO N IN THE ABOVE TAX CASE (APPEALS). 18. IN THE RESULT, BOTH THE ABOVE TAX CASE (APPEALS ) STAND DISMISSED. NO COSTS. CONSEQUENTLY, M.P.NO.1 OF 2014 IS ALSO DISMISSED. 7. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE HIGH COURT OF MADRAS IN THE ASSESSEES OWN CASE, SUPRA, THE LD. CIT(A) RIGHTLY CONFIRMED THE STAND TAKEN BY THE AO. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDERS PASSED BY THE LD. CIT(A) FOR THE IMPUGNED AYS. ACCORDINGLY, THE GROUNDS RAISED BY T HE ASSESSEE FOR THE IMPUGNED AYS ARE DISMISSED. 8. IN THE RESULT, ALL THESE FIVE APPEALS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JUNE, 2019 IN CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( . ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, /! /DATED: 20 TH JUNE, 2019 . EDN, SR. P.S . ( &+01 21$+ /COPY TO: 1. % /APPELLANT 2. &'% /RESPONDENT 3. * 3+ ( )/CIT(A) 4. * 3+ /CIT 5. 1 45 &+ /DR 6. 56 7 /GF